While investment returns from ULIPs or Unit Linked Insurance Plans are usually significant for long-term investment periods, they may not be guaranteed. In the case of ULIPS, the investment risk in the financial portfolio is borne by you (the policyholder.) Based on the performance of the chosen unit linked fund options, you may receive gains or incur losses on your investment. Here, it is crucial to understand that the past returns of a ULIP fund option are not necessarily indicative of the fund’s future performance.
Unit Linked Insurance Plans enable you to invest in equity, debt or a mixture of both fund options. Subsequently, the returns will depend on the underlying performance of each fund option or asset class. Given that the investment returns from these asset classes are market-linked, there is no guarantee that the chosen fund option will generate a specific return, or that the fund value will be an assured amount. Instead, the fund value on maturity under any ULIP plan will be a function of the number of units you have held and the NAV (Net Asset Value) of the fund options as on the maturity date. If the market rises, the fund value under your ULIP investments will rise too, and vice versa. If any distributor offers any claims for guaranteed returns, it is advisable that you do not fall for such claims.
How do ULIPs Work?
When you invest in any ULIP, you need to pay a fixed premium amount to avail of the selected cover amount. A portion of the premium goes towards providing insurance coverage, while the remaining amount is allocated into equity or debt instruments, depending upon your financial goals and risk appetite.
Being an investor, you have the flexibility to choose whether you wish to invest primarily in equity or debt fund options or go for a mix of both (balanced option) for your investment plan. Additionally, you may switch seamlessly between investment plans throughout the course of the premium payment tenure, without incurring additional charges in most cases.
There are dedicated Fund Managers who are responsible for managing your investment according to the fund type on your behalf, in debt or equity instruments. It is important to note here that the IRDAI (Insurance Regulatory Development Authority of India) has specified that all ULIPs have a lock-in period of 5 years, and the performance or ability to generate returns of each ULIP is linked to the markets.
Overall, you must understand that even though ULIPs do not offer guaranteed returns, they do offer significant wealth appreciation on your investment in the long run. The longer you stay invested in a ULIP, more will be the returns earned. At the same time, you and your loved ones will receive the protection of life insurance throughout the investment tenure. By investing in ULIPs; thus, you can get the desired life cover while investing for your financial goals. In other words, ULIPs can help create more value for you.